The town has its own police department and contracts with Phoenix for fire service.

Fiscal yearPolice — town cost2011-12$908,5002002-03$119,800

Sources: Scottsdale and Paradise Valley. Note: Numbers are rounded.

By the numbers

The median pension benefit for retired public-safety employees is $47,393, according to the Public Safety Personnel Retirement System.

In addition, some employees take part in the Deferred Retirement Option Plan. To encourage veteran police officers and firefighters to stay on the job longer, public-safety employees can work an extra five years before retiring.

Below are statistics on pensions and DROP payments in the Northeast Valley. The figures are through February.

The price tag for Scottsdale and Paradise Valley to contribute toward the pensions of police officers and firefighters has more than quadrupled, as taxpayers have been forced to prop up the retirement system in the past decade.

Scottsdale and other communities are spending millions of dollars more to bankroll the retirements of employees in the Public Safety Personnel Retirement System, which is unhealthy because of crushing investment losses, guaranteed cost-of-living increases and fewer employees paying into the system, according to interviews and records obtained by The Arizona Republic.

Those pensions play a big role as well in the escalating costs that have made it harder for municipalities to balance budgets as revenues plummeted in the Great Recession. To make ends meet, municipalities have resorted to slashing public services, raising taxes and cutting back or not hiring employees including police officers and firefighters.

Despite legislative efforts to reform the system, taxpayers have been on the hook year after year to pump additional money into the retirement system, which is underfunded by $4.27 billion.

The financially troubled system “continues to be an issue that needs to be addressed,” Scottsdale Mayor Jim Lane said, noting that Scottsdale has explored withdrawing from Arizona’s public-pension plans. The city didn’t pursue the concept further after a legal opinion determined it would be difficult, he said.

Scottsdale, as well as its employees, makes contributions toward their retirements into PSPRS — and into the larger Arizona State Retirement System, and the Elected Officials Retirement Plan for the mayor and City Council members.

Scottsdale and other municipalities are predicting higher pension costs every year based on past trends and projections, with no definitive end in sight.

Meanwhile, some communities are in a catch-22 of sorts, as budget constraints exacerbated by pension costs have stopped them from hiring as many police officers and firefighters. More employees paying into the system would help shoulder ever-increasing costs.

Paradise Valley Town Manager Jim Bacon said the town of 13,000 residents has made painful budget cuts and stopped hiring officers as a direct result of police pension costs, which have grown more than 650 percent since 2002.

Records show Paradise Valley is worse off than many other communities, with one of the highest contribution rates toward police pensions in Arizona. The rate is how much the town contributes toward an officer’s retirement based on that person’s wages.

Paradise Valley’s contribution rate is 51.02 percent, compared with the statewide average of 27.18 percent. The town contributes a higher percentage of an officer’s pay than nearly all other employers across Arizona.

“I don’t see it getting significantly better for us because of the way the system is designed,” Bacon said.

Reform elusive

The Arizona Legislature has tried to change PSPRS by requiring public-safety officers to pay slightly more for their pensions and to temporarily stop cost-of-living increases for retirees in July 2012.

A group of current and retired police officers has sued the state, saying they want the cost-of-living increases restored and that they shouldn’t have to pay more.

Legislators who have supported public-pension reform say there is little political resolve to make additional changes until after public-safety lawsuits challenging reforms work their way through the courts.

Meanwhile, the costs for municipalities paying into the system continue to rise significantly.

In Scottsdale and Paradise Valley, taxpayers contributed a combined $7.6 million toward public-safety retirements in fiscal 2012, up from $1.3 million in fiscal 2003.

The retirement costs in 2003 did not include firefighters, who began work for the city in 2005, when Scottsdale formed its municipal Fire Department. Paradise Valley contracts with Phoenix for fire service.

Scottsdale forecasts higher retirement costs for each of the next five years, its budget director said, prolonging the budget crunch on other city services and programs.

“If somehow the pension costs decreased, you would have that much more money to spend,” said Scottsdale City Treasurer David Smith, who spoke with The Republic last year about rising employee pension costs.

Smith said liabilities for state public-pension systems have jumped as employees live longer and benefits have improved.

“All this leads to higher and higher contributions required of employers like Scottsdale,” he said.

‘DROP’ adds pressure

Statewide, the average pension benefit is $49,480, according to PSPRS.

Benefits have increased because the average salaries for public-safety employees, which determines retirement benefits, have risen every year except one and retirees have been given cost-of-living increases that have far outpaced inflation.

In addition, records show hundreds of municipal police and fire employees have received lump-sum payouts in excess of $100,000 from the Deferred Retirement Option Plan.

To encourage veteran police officers and firefighters to stay on the job longer, public-safety employees can work an extra five years before retiring.

Upon entering “DROP,” employees no longer accrue credits for their years of service.

At the end of the five years, participants typically receive a large, six-figure lump-sum payout when they finally begin collecting their pensions.

In Arizona, the average DROP payment is $238,048.

In Scottsdale, the average payment was $199,000.

DROP has caused significant costs to the retirement system, according to Jim Hacking,PSPRS administrator.

Costs spiral

Approximately 10,000 individuals, including surviving spouses and children of deceased officers, receive PSPRS benefits.

Each city and town within the system is responsible for the pension liabilities of their current and retired employees and has its own contribution rate. The rate is applied to an employee’s wages, and the amount is sent to PSPRS.

The rate paid by police and firefighters in PSPRS was capped at 7.65 percent, but it has gradually increased following 2011 legislative reforms. It’s now set at 9.55 percent, and it will rise to 10.35 percent on July 1, when the new fiscal year begins.

Meanwhile, the group of police officers have sued the state to roll back a contribution rate increase for employees that began in 2012.

Statewide, the average contribution rate is 27.18 percent. An employee earning $50,000 would pay an amount equal to 9.55 percent or $4,755, while the employer’s contribution would be 27.18 percent, or $13,590. Starting July 1, the average rate will rise to 30.44 percent.

In Paradise Valley, the town’s rate toward police pensions will be 51.92 percent, up from 18.51 percent seven years ago.CQ

The town, which is obligated to pay its own pension liabilities, would benefit from entering a larger pool with other employers and by raising the rate for employees so they contribute an amount closer to what the town pays, said Bacon, town manager since 2008.

Neither change is likely to happen, he said. “If we are ultimately required to stay in this model, we’re going to have these kinds of costs,” said Bacon, noting that Paradise Valley officers are not at fault for the rising tab.

Starting this summer, Scottsdale will pay contribution rates of 12.14 percent and 23.90 percent toward the retirement pensions of employees in the Fire and Police departments, respectively.

Jim Hill, president of the Police Officers of Scottsdale Association, said police deserve a pension because of the hardship and inherent danger of the job.

He called pensions “an added incentive to continue to draw the best and brightest.”

“Police officers for all intents and purposes are on the job 24/7 until they retire,” Hill said. “We really don’t have down time, even when we’re off-duty and out with our families, we’re constantly on watch for bad guys that we’ve encountered at work and for suspicious activity around us and are always prepared to take action.”

As far as the stability of PSPRS, Hill said public-safety officials have been collaborative in working with lawmakers to adjust retirement requirements and increase the amount paid by employees.

“We understand that these were necessary changes and want to continue to work with our lawmakers in a collaborative fashion,” he said.

Records indicate many Valley municipalities have laid off or stopped hiring as many police officers in recent years, leading to fewer firefighters and officers patrolling the streets and leaving some communities vulnerable.

Scottsdale is no exception, with 409 police employees in 2011-12 compared with 426 in 2008-09.

Fewer workers, bigger demands

Jim Nolan, president of the Scottsdale Fraternal Order of Police, told the City Council last month that the city’s public-safety workers have “endured significant staff reductions, increased workloads and plummeting morale.”

Scottsdale has had problems retaining officers in recent years, Assistant Police Chief John Cocca told the council at the time.

Paradise Valley also has fewer officers than it did five years ago, and Bacon estimated that the town’s additional costs paid toward police pensions since 2009 could have gone to hiring four new police officers.

Still, despite fewer officers on the streets, crime records obtained by The Republic show that most communities have not experienced an increase in reported crimes.

Jim Mann, executive director of the Fraternal Order of Police Arizona Labor Council, said technological advances and fewer responding officers could account for a decrease in crime.

As many departments cut back their police forces through attrition, officers have been forced to take on higher workloads and put in longer hours, police officials said. As a result, morale has taken a hit statewide, said Levi Bolton, executive director of the Arizona Police Association.

Bolton said the stress and continued criticism of the public-pension system has taken a toll on officers, who he said are also suffering from the poor investments and are unfairly blamed for the financial troubles in the PSPRS trust.

Without additional efforts to curb expenses and improve the system, public-safety officials estimate that it could be 10 to 15 years or longer before PSPRS reaches a healthy funding level and taxpayers aren’t on the hook to pour increasingly larger amounts of money into the system every year.

Bryan Jeffries, a Mesa fire captain, said positive changes have already been made, including diversifying the system’s investment portfolio. For that reason, he argued that PSPRS “is absolutely sustainable.”

Others, such as Lane, believe the system needs an overhaul to secure its long-term health.

“It is one of those things some people feel like needs to be addressed only in tough times,” Lane said. “I don’t share that belief necessarily.”

Kavanagh, a state legislator since 2007, wants voters to amend the state Constitution, which he said would open the door for pension systems to raise contributions or cut back benefits to ensure their financial sustainability.

Voters would have to approve the measure, which would provide fewer legal protections for public pensions.

Arizona’s Constitution, which requires the funding of public retirement systems, has a provision that other states don’t have, which says pensions cannot be diminished or impaired.

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